Ijara Calculator (Islamic Lease Finance)
Ijara Calculator (Islamic Lease Finance)
The monthly rental on an Ijara home or car finance, the total you pay, and how each rental splits between buying the asset and the bank’s return, year by year.
Ijara monthly rental
Home $50,00,000, down payment $10,00,000, 8% for 20 years
Ijara rental and its split
- F
- the amount financed: cost less down payment
- i
- the rental rate ÷ 12
- n
- the number of monthly rentals
Worked example
Home $50,00,000, down payment $10,00,000, 8% for 20 years
Financed = 50,00,000 − 10,00,000 = $40,00,000
Rental = 40,00,000 × 0.08/12 ÷ [1 − (1 + 0.08/12)−240] = $33,458
First month: bank's return 40,00,000 × 0.08/12 = $26,667; capital part $6,791
All 240 rentals $80,29,825, of which the bank's return is $40,29,825
After 10 years you have paid 44.8% of the cost, with the down payment
How Ijara home and car finance is priced
In an Ijara the bank buys the home or car and leases it to you. The version used for home and car finance, often called Ijara wa iqtina or Ijara muntahia bittamleek, adds a promise that ownership passes to you at the end of the lease, by sale or gift, once every rental is paid. Until then the bank owns the asset. That is why major structural repairs and the asset’s insurance (takaful) are usually the bank’s responsibility, while everyday upkeep is yours; your contract sets out which.
How the rental is worked out. Banks price the rental on a reducing balance, the same arithmetic as an EMI. Mashreq Al Islami’s Ijarah home finance key facts statement, for example, splits each rental into a fixed rental, which repays the bank’s cost, and a variable rental, the profit rate on the fixed rental still outstanding; its example of AED 1,000,000 over 25 years at 5% gives about AED 5,846 a month, which is exactly the reducing-balance figure. That bank counts actual days in each month, so its split differs from this page’s by a little each month; the rental itself does not. In the example here, $33,458 a month on $40,00,000 starts with $26,667 of return and $6,791 of capital. The return shrinks and the capital part grows each month, so you have paid half the cost in year 12.
Variable rates. Home Ijara is usually reviewed against a benchmark such as EIBOR or KIBOR, with a floor and a cap, so the rental changes over the years. This page holds the rate constant; rerun it with a higher rate to see the effect. If an offer quotes a flat rate, turn it into a reducing rate first with the flat vs reducing rate calculator. To compare with a cost-plus sale, see the murabaha calculator, and with a conventional loan, the EMI calculator.
This page does the arithmetic of a lease. Whether a particular contract meets Shariah requirements is for the bank’s Shariah board and your own scholar, not this calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How is the Ijara monthly rental calculated?
Like an EMI on a reducing balance: financed amount × i ÷ [1 − (1 + i)^−n], with i the rate ÷ 12. 40,00,000 at 8% for 20 years is $33,458 a month.
What is the difference between Ijara and murabaha?
In a murabaha the bank sells you the asset at a fixed marked-up price paid in instalments, and you own it at once. In an Ijara it leases the asset and keeps ownership until the end, and the rental can be reviewed.
Who pays for repairs and insurance in an Ijara?
As the owner, the bank is usually responsible for major structural repairs and insuring the asset, and you for everyday maintenance. The contract decides; some banks recover costs through the rental.
What happens if I settle an Ijara early?
You buy the bank’s remaining share, normally the capital still outstanding, and the lease ends. Banks may charge an early settlement fee. The year-by-year table shows the capital outstanding.
Related calculators
References
- Mashreq Al Islami. Ijarah Home Finance Key Facts Statement: rentals on a reducing balance; fixed rental is the monthly rental less the variable rental; variable rental = fixed rental outstanding × profit rate × actual days ÷ days in the year; ownership transferred at the end of the tenure. https://www.mashreqalislami.com/-/jssmedia/pdfs/mai/neo/kfs-tnc/MAI-HF-Expats-KFS.ashx
- Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Shari’ah Standard No. 9: Ijarah and Ijarah Muntahia Bittamleek.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.